Factoring in the 21st Century
The economic relevance of
factoring and trade finance in Europe
May 2013
1. What is factoring?
2. Who are factoring clients?
3. European factoring market and future
trends
4. The EU Federation for the Factoring
and Commercial Finance Industry
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What is factoring?
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1. What is factoring?
The cycle of factoring
Factoring
Client
Terminology

The Factor is a financial entity
providing Factoring facilities

The Factoring Client is a supplier
business which has a contractual
relationship with a Factor or an
Asset based lender.

The Debtor (Buyer) is a business that
has been supplied with goods or
services by the Client and is obliged
to make payment for them.

An Assignment is the transfer of
Receivables from the Assignor to the
Assignee

The Assignor is the entity disposing
of an asset by an Assignment

The Assignee is the entity to which a
Receivable is assigned
Debtor
(Buyer)
Credit assessment
Harmonized terms of the European Factoring and Commercial
Finance Industry can be found in the EUF Glossary
Factor
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1. What is factoring?
The three functions of factoring
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2
3
Purchase of
receivables
Factor takes on
the risk of debtor’s
default
Management of
receivables and
debt collection
Financing function
Safeguarding
function
Servicing function
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1. What is factoring?
Main types of factoring
Full-Service Factoring
The Factor provides the Assignor with all the following services:
Advance of a percentage of the amount of the receivables assigned;
Receivable management and collections;
Credit protection.
Maturity Factoring
The Assignor receives from the Factor the payment of the receivables on their due
date or on a certain, fixed and pre-agreed date
Non-Recourse Factoring
The Factor offers a credit protection service, therefore the credit risk of debtor
failure remains with the factor.
Recourse Factoring
The credit risk of Debtor failure remains with the Assignor (no credit protection
service).
Reverse Factoring
(or Supplier Finance)
The agreement is set between the Factor and a (usually strong) Debtor. The Factor
offers the Debtor’s suppliers the possibility to assign any receivable approved for
payment by the Debtor.
Invoice Dicounting
The Assignor assigns its receivables in exchange for an advance of a percentage of
the amount but retain full control of its sales ledger function.
International factoring
Includes Import and Export Factoring, usually performed through the Two Factor
System (two Factoring companies connected through an International
Organization of Factoring: IFG or FCI)
Harmonized terms of the European Factoring and Commercial
Finance Industry can be found in the EUF Glossary
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2
Who are factoring clients?
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2. Who are factoring clients?
Who are factoring users?
Any size
Many economic sectors
Anywhere in the world


Manufacturing

Mainly domestic

Distribution


Services
But powerful role in
Import-Export (Two
Factor System)

Particularly praised
by SMEs
But also large and
major companies
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2. Who are factoring clients?
What are the benefits for the clients using factoring?

Prompt liquidity

Financing according to turnover rather than to collateral or track record
 The focus is not on the factoring client but on its customers

Protection against defaults

Secured national and international market expansion

Outsources administration costs and improves debt collection
performance

Flexible, it adapts as business grows
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2. Who are factoring clients?
A popular form of alternative financing, praised by SMEs
Average turnover per client 2011 (million €)
Small < €10M
Micro < €2M
Sources: IFG statistics 2011
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2. Who are factoring clients?
Factoring and SMEs, examples of the British
and German markets
Factoring volumes in relation to total turnover and clients (%)
91,5
90,0
90,00
80,0
80,00
70,0
70,00
Turnover
Clients
60,0
40,5
40,0
29,1
30,0
20,0
7,1
10,0
1,4
0,0
€0-10M
88,19
60,00
50,00
49,23
40,00
30,4
€10-50M
€50M+
Source: ABFA, 2011
50,0
Germany, 2012
100,00
31,38
30,00
19,4
20,00
8,44
10,00
3,38
0,00
€0-10M
€10-50M
€50M+
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Source: DFV, 2012
UK, 2011
100,0
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European factoring market
and future trends
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3. European factoring market
and future trends
Evolution of factoring turnover in the EU
In recent years, firms and banks
reached a better understanding
of the benefits of factoring:

Sound management of the
working capital (from the
users’ point of view)

Lower risks and lower
capital requirements (from
the banks’ point of view).
This evolution contributes to the
growth of the factoring market
in Europe and should bring it
closer to its potential in years to
come.
Sources: EU national associations, FCI and IFG statistics
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3. European factoring market
and future trends
Factoring turnover in the EU
Sources: EU national associations, FCI and IFG statistics

601,000 jobs currently
supported by factoring in
UK, FR, IT and DE

Further 282,000 potential
jobs to be supported by
2015 if « optimal » usage
was made
Source: GE, « The AR factor » study, 2011
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The EU Federation for the Factoring
and Commercial Finance Industry
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4. The EU Federation for the Factoring and
Commercial Finance Industry
EUF Missions

Create a common voice for the European Factoring Industry

Support the creation of a more integrated and harmonised framework and a
« level-playing field »

Build awareness of the funding solutions Factors provide

Promote understanding of the potential role of Factoring in supporting
businesses, especially but not only SMEs

Create a wider opportunity for the Industry to grow
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4. The EU Federation for the Factoring and
Commercial Finance Industry
EUF Organisation
16 Members
14 National EU associations of Factoring and 2 International Organizations of Factoring
Independent Chairman:
John Gielen
Legal Committee
Executive
Committee
Economics and
Statistics Committee
Independent Coordinator:
John Brehcist
Accounting Working
Group
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Contact information:
EU Federation for the Factoring and
Commercial Finance Industry
c/o IFG Secretariat
Avenue Reine Astrid 452
B-1950 Kraainem
BELGIUM
www.euf.eu.com
info@euf.eu.com
sebastien.commain@euralia.eu
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